The Next Economic Paradigm

Tag: decentralization

Bitcoin Protocol Impact on the Engineering Profession

I will be delivering a very serious presentation at the Nation Society of Professional Engineers Annual Conference on July 2015 in Seattle.  My point will be crystal clear. Money must represent human productivity. Period. The base layer of any economy is a nation’s infrastructure.  As such, any new Cryptocurrency MUST be associated with the engineering domain otherwise it is equal to any other financial derivative whose value is also ultimately dependent on the value of engineered infrastructure.

It’s time to stop the poetry and time start building a civilization we can all be proud of.  It is time to build Curiosumé

Abstract: 

The Bitcoin Protocol and Future Currency Impact on the Engineering Profession

In a Wall Street Journal essay, two authors wrote, “The digital currency known as bitcoin is only six years old, and many of its critics are already declaring it dead. But such dire predictions miss a far more important point: Whether bitcoin survives or not, the technology underlying it is here to stay.” This session will cover what digital currency means for the engineering profession.

“Decentralization” is a term being applied to platforms that use the Blockchain Protocol pioneered by Satoshi Nakamoto, the inventor of Bitcoin.  As a cryptographic currency, Bitcoin remains problematic.  However, as an algorithmic protocol, blockchain technology will enable society to cheaply perform common business processes that are now controlled by institutions such as banks, insurance companies, corporations, government, etc.  Today, rapidly emerging platforms are under development to bring “smart contracts” (algorithms based on blockchain technology) into the mainstream.  

An important and essential variant of smart contracts is called an “Adjudicated Smart Contract” that requires an independent 3rd party adjudicator that would “flip the switch” on algorithmic agreements in finance, insurance, and decisions of governance.  There is a staggering opportunity ahead for the engineering profession to position itself for the role of the adjudicator in a wide variety of important and high value transactions.  The caveat is that we too must change the way that we organize ourselves.   

This presentation, Decentralizing the Engineering Profession, begins with the failure of the NAFTA MRD followed by an introduction to blockchain technologies, and ending with specifications on how our profession can jump to the top of the value chain in the era of Social Capitalism – if, and only if, [the engineering profession] can choose to change.  

Date:

Thursday, July 16, 2015
Start Time: 3:15 pm
End Time: 4:15 pm
Number of PDHs: 1
Speaker: Dan Robles, P.E.
REF:

Bitcoin Protocol Impact on the Engineering Profession

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Means and Methods of the Curiosumé DApp

The Mechanics of the Curiosumé DApp are extremely simple. In fact, perhaps the greatest challenge of building the application will be to truncate the features of Curiosumé to the simplest functional form.

Means and Methods of the Curiosumé DApp

The only thing that Curiosumé is really supposed to accomplish is convert a résumé, CV, or project description from an analog form to a digital form so that the accounting, production, storage, and exchange of intangible assets can be machine enabled in a meaningful and valuable way. Centralized applications such as Facebook and Google perform this job quite effectively within their fortress for sale to 3rd parties, Curiosumé will do the same for decentralized applications between two parties only where value is retained by the creators and owners of the data.

An analog to digital converter for knowledge assets.

Curiosumé is a “writer” that is given away free to the Commons, open sourced, and decentralized. Ideally, an independent instance of the totality of Curiosumé could reside on every device. Applications that import Curiosumé data are called “readers”. Readers will be developed by entrepreneurs to accelerate any number of business models that are otherwise unviable in the current economic paradigm or simply under-performing due to the friction of the current economic model. Reader application may be for-profit giving the network an incentive to maintain Curiosumé. How an entrepreneur uses Curiosumé could be a trade secret rendering many patents obsolete.   These Reader Applications may include Decentralization schemes (DApps), P2P exchanges, and community cooperatives.

As such, the preferred interface between the reader and the writer will be likely be more suited to the MaidSafe protocol of secure P2P exchange of data. This would be similar to other intangible assets such as music, art, and literary works. It is easy to imagine a persona of one’s life story to be a real-time literary work – if not, then it should be.

Converting knowledge assets from analog to digital form:

Step one: User tags themselves with URL’s from Wikipedia articles that best represent intentions to interact with their community.

Step two: User self-selects their placement on a spectrum comprised of endpoints: student of that content, and teacher of that content (Note; midway across the spectrum corresponds to degrees of collaboration).

Step three: Curiosumé creates a digital persona in a specific form

Step four: Export persona to “reader” applications for analysis and processing.

This is the extent of the functional requirements of Curiosumé.

Operational Requirements:

The operational requirements of the application are somewhat more complex. The following six conditions must me secured by the Curiosumé application. If any of these 6 tenets are compromised, the mathematics behind the applications will fail and the intended outcomes will be suboptimal.

1. All public and private Wikis should reconcile upward to a top level Wikipedia entry

2, Rankings must span a non-competitive “student-collaborator-teacher” spectrum

3. Users must be allowed to self-select their placement on the spectrum.

4. The data format must be uniform as;

5. Persona must be indelible to anyone except the owner.

6. Interactions must be anonymous until the point of transaction

These 6 Tenets are unpacked a bit more below:

The Calculus of Curiosumé 

In this form, clean data may be easily normalized for statistical inference while remaining anonymous until an actual transaction of personal data may be negotiated on a P2P basis.  In essence, the criteria described here will produce extraordinarily useful data.

Rule 1: This rule secures a commons based knowledge inventory.  Much like air, water, and Earth, the knowledge assets in the commons are visible components from which useful things will be produced as regulated by supply and demand for the same components.

Rule 2: Students and teachers do not normally compete, rather, in the case of Curiosumé DApp, they represent “supply” and “demand” in a proto-economy. Collaborators represent factors of production in an economy where complementary knowledge can replicate a iterate – these are the engines that create value – this is the mining function.  These data will form a bell curve providing statistical inference to the commons where social value is mined in aggregate.

Rule 3:  The process of self-selection will be deeply personal to all participants and represents the individual mining of value for deposit in the new bank of intangible assets.  All this “mining” can be measured to form the basis of generalized reciprocity of social crypto-currencies.

Rule 4: The common format of of the Curiosumé output function will assure the ability to mix, match, exchange, discover, or test any scenario of social production imaginable.

Rule 5: Gives each person ownership of their data.

Rule 6: Not unlike Craigslist, anonymity until point of transaction is important for allowing people to view the public dataset and test their own participation to find opportunities for productive interaction.

Reader DApps:

When a match is made, a transaction can be negotiated.  However, this functionality is beyond the scope of the Curiosumé writer.  Instead, an innumerable amount of Readers will be developed by entrepreneurs to collect, form, and test scenarios negotiating the decentralized production of all useful things.

Innumerable use cases will create moderate generalized disruption across the current economic paradigm until a tipping point is reached where factors of production will flip from finite tangible to infinite intangible basis of account. Social priorities regarding what is invented and produced will be altered in favor of shared asset preservation rather than private asset consumption. Income equality, by design, will be normalized.  Collaboration will replace competition eliminating the need for over reaching controls and associated force.

 

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Decentralized Integration of Complex Systems

The recent Panel at The Future of Money and Technology Summit on Fueling the Decentralization Movement ended on a very interesting point: The Integration of Complex Systems.

The last comments from Chris Peel suggested that the iPhone program was more complex than Apollo and that we are a far way off from the ability to decentralize production to the degree that a space program or revolutionary consumer product would require. From my years in aviation, I am keenly aware that the complexities associated with an aircraft program would be extremely difficult and risky to manage with a series of autonomous agents and smart contracts – as we know them today.

Wisdom of Crowds

However, the proposition made by Joel Dietz at Swarm is significant. Swarm proposes to crowd-select, crowd-vet, and crowd-fund start-ups. Several efficiencies are cited:

1. The crowd knows best what is needed in a specific time and domain,

2. The same crowd is also the first user/customer/advocates of the product, and

3. The same crowd is the first to iterate the project.

Such diverse and comprehensive “single source” domain expertise is unlikely to be available from any Venture Capital Firm.  Instead, far too many start-ups are designed specifically for the Venture Capital process effectively inbred with the centralized DNA.  The VC formula is fairly simple, well documented, and contains suitably developed infrastructure. The VC process efficiently removes promising innovations from a decentralized ecosystem, repackages them, and injects them into the 20th century finance model of banks, brokers, and IPOs.

Today, the decentralization movement is portrayed in the media by silos like AirBnB and Uber, who may eventually expand into other markets (such as Amazon did from books), but from a relative monopoly position of acquisitions, scale, and market dominance – which is the antithesis of decentralization.

Fueling The Decentralization Movement

This Panel at Future of Money was selected in a very different manner.  The idea that I was trying to get at is that an ecosystem is like scaffolding being populated with individual applications. At first they are sparse, but soon they expand to depend upon each other. At first, each of the panelists seemed very different and related only by ideology. As the session progressed, we could see the each of the panelists were filling in the gaps between themselves soon appearing like a full stack.

Paige Peterson suggested that Maidsafe’s ideas and technology would solve specific problems in the crypto-space that the blockchain could not. Christian Peel suggested that Swarm and Maidsafe may reduce scale risk with what Ethereum has to offer. Sam Yilmaz at DApps Fund is betting on cryptoequity and a broad spectrum of “work proofs” as a means of holding these DApps together rather than letting them become disassembled by a single minded Venture Capital process. Of course, our interest at The Ingenesist Project is precisely on decentralizing both supply AND demand as a means of articulating intangible assets to society (ref: Coengineers.com and Curiosumé).

What is Cryptoequity?

“Cryptoequity,” as defined by Swarm (from this Source) is an umbrella term that covers various applications of cryptographic ledger offerings.

These can include:

(1) Product presales in which the token serves as a coupon redeemable for a real world good (i.e. the Comic Book sale done via Swarm)

(2) Product sales in which the token is redeemable for some service in a decentralized network (i.e. Storj or Ethereum)

(3) Product sales which serve as a “subscription” or membership to some decentralized network (i.e. Swarm)

(4) Token which serves as a license to use some type of intellectual property, potentially with an attached legal contract (i.e. sales being conducted in the Swarm 5th of November launch)

(5) “Shares” serving as stock equivalent for organizations that have no legal entity (i.e. BitShares)

(6) Shares serving as stock for legal entities (i.e. Overstock/Medici)

Efficiency in Zero Marginal Cost

The relative benefit of many of these is that it solves an interesting problem related to the near zero marginal cost of software distribution; the fixed scarcity of a good or service allows the market to determine the appropriate price point for a product rather than centralized forced scarcity or management selection.

Decentralized Integration of Complex Systems

If we are to ever reach a point where complex systems (such as space travel or consumer products – or even equitable governance, environmental stewardship, and fair wealth distribution)  can ever be achieved in a decentralized manner, we must start with the integration of decentralized applications among themselves in a decentralized way.  We should not exclusively extract and seal critical components off from an ecosystem and run them through the VC gamut – the disruption goes both ways.

 

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Future Of Money Part 2

In 1801, Eli Whitney went before the US Congress with 10 working muskets. He proceeded to disassemble each of them, mix and scramble all the parts, then reassemble 10 muskets – all of them worked.  Prior to that day, most things were custom made by craftsmen using hand tools. Then, in a flash of geological time, the idea of interchangeable parts was released to the world – it would be impossible to put the idea back in its cage. Extraordinary levels of innovation followed as the industrial revolution was born.

In the murky world of crypto-currencies, the financial instruments of tomorrow may not necessarily be assembled like they are today. The new applications of decentralized currency are modeled more like “energy” flows rather than individual units of account. Energy exists in many forms such as electrical energy, chemical energy, thermodynamic energy, kinetic energy, nuclear energy, etc., but the objective is always the same, to move something in the physical world – to create change. The value of crypto-currency is proportional to the magnitude of change it can induce.

Future Of Money Part 2

A generalized theory is emerging to define and specify decentralized applications (DApps). This makes them easier to identify, measure, and replicate. If ignored, these innovations have the potential to be extremely disruptive to the insurance industry. If adapted, they can greatly increase the efficiency, variety, precision, and granularity for insurance products of tomorrow.

Not unlike the dawn of the industrial revolution, there is an extraordinary level of innovation in crypto-currencies since the inception of Bitcoin. The objective of these efforts is to move something in computational space such as flipping a switch, verifying a data set, securing identity, establishing order, establishing ownership, verifying capacity, etc.   This may seem somewhat obscure until you realize that these “energies” can convert and combine in immeasurable combinations to form autonomous logic circuits – i.e. complex contracts.

Since all businesses are based on contracts that act upon some physical space, it is only a matter of time before crypto-contracts jump to the physical space as well. As David Johnson, CEO of DApps Fund (a venture capital firm for decentralized innovation) says; “Everything that can be decentralized will be decentralized”. Eli Whitney was said to have uttered similar sentiments.

The early manifestations of this phenomenon are called Decentralized Application (DApps); these are little computational engines that operate autonomously and whose output is determined by an algorithm. The resulting decisions are binary and final. There are three characteristics that an application must have in order to be classified as a DApps. As you read these conditions, note how different they are from a traditional corporate structure.

  1. The application must be completely open-source, it must operate Autonomously, with no entity controlling the majority of its tokens, and its data and records of operation must be cryptographically stored in a public, decentralized block chain.
  2. The application must generate tokens according to a standard algorithm or set of criteria. These tokens must be necessary for the use of the application and any contribution from users should be rewarded by payment in the application’s tokens.
  3. The application may adapt its protocol in response to proposed improvements and market feedback but all changes must be decided by majority consensus of its users.

Next, there are three classes of Decentralized Applications that align loosely to a familiar computer analogy:

  • A Type I DApp is analogous to a computer operating system such as Windows or the Mac OS X, etc.
  • A Type II DApp is analogous to a general-purpose software program such as Word, Excel, or iPhoto.
  • A Type III DApp is analogous to a specialized software solution like a mail merge, or an expense macro, or a blogging platform.

As such, we can expect that there will be a fewest type I DApps, more type II DApps and even more type III DApps.

The more direct definition of these three classes is as follows: 

  • Type I decentralized applications has its own block chain. Bitcoin is the most famous example of a type I decentralized application but there are others. 
  • Type II decentralized applications use the block chain of a type I decentralized application. Type II decentralized applications are protocols and have tokens that are necessary for their function. 
  • Type III decentralized applications use the protocol of a type II decentralized application. For example: A hypothetical Cloud Protocol that uses a type II DApp to issue ‘cloudcoins’ that can be used to buy cloud computing services would be an example of a type III decentralized application.

Taken together we have most, if not all, of the familiar components of governance and interdependencies without the layers of management that are associated with traditional corporations. As you absorb the analogy and definitions, consider how DApps can be nested, combined, and integrated with other DApps to emulate complex contracts.

One particularly interesting DApp that recently launched is called Counterparty . Counterparty is a Type II DApp that performs one single task extremely well.

Counterparty is a betting platform; or we can put it politely and call it an escrow platform. Two parties may enter into an agreement about the outcome of a future event such as a horse race or football game. Each player puts his or her money into an escrow account that is sealed prior to the race. After the results are registered, the DApp autonomously transfers the money from the combined account to the winner.

Now imagine 500 bettors putting their money into the escrow account prior to the contract event. Upon completion of the event, the money is automatically assigned by algorithm to the winners in pre-assigned proportions. It does not take too much imagination to see this as an insurance product, except without agents, executives, managers, office towers or cute little geckos.

Soon, marathon runners can pool health insurance more towards sprains and falls, and less toward heart disease. Mini-van moms can pool auto insurance for number of passengers rather than miles driven. Professionals can pool E&O insurance by peer review. In fact, any affinity group can accurately price the perils that they are also most capable to manage.  DApps are massively scalable; one application can serve infinite users.

The market size of binary betting (sports, insurance, coin toss, etc.) combined with complex betting (contracts for difference, hedging, options, etc.) is in the trillions of dollars. So while Counterparty has only one use case, the use case is massive.  Now imagine 100,000 DApps operating autonomously, combining and integrating into complex relationships – not unlike building a jigsaw puzzle.

There was once a time when craftsmen guilds were the most powerful organization in the republic. Many of us remember the days when labor was increasingly replaced by machinery. The time may be arriving where machinery can also replace management. The insurance industry must become familiar with this environment and have the wherewithal to reorganize itself, before someone else does it for them.

***

Come Join us At The Future of Money and Technology Summit in San Francisco, December 2, 2014 for my panel discussion on Fueling the Decentralization Movement.

Speakers:

Paige Peterson – Maidsafe

Sam Onat Yilmaz – Dapps Fund

Joel Dietz – Swarm.co

Christian Peel – Ethereum

Moderator: Dan Robles, The Ingenesist Project

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